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Are inflation targets good inflation forecasts?

Author

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  • Marie Diron
  • Benoît Mojon

Abstract

The authors show that quantified inflation objectives, which have been adopted by many industrialized countries, can be used as rule-of-thumb forecasting devices. Remarkably, they yield smaller forecast errors than widely used forecasting models and the forecasts of professional experts.

Suggested Citation

  • Marie Diron & Benoît Mojon, 2008. "Are inflation targets good inflation forecasts?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 33-45.
  • Handle: RePEc:fip:fedhep:y:2008:i:qii:p:33-45:n:v.32no.2
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    References listed on IDEAS

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    1. Jeremy Rudd & Karl Whelan, 2006. "Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics?," American Economic Review, American Economic Association, vol. 96(1), pages 303-320, March.
    2. Fabiani, S. & Druant, M. & Hernando, I. & Kwapil, C. & Landau, B. & Loupias, C. & Martins, F. & Mathä, T. & Sabbatini, R. & Stahl, H. & Stockman, A., 2005. "The Pricing Behaviour of Firms in the Euro Area: New Survey Evidence," Working papers 135, Banque de France.
    3. Hoffmann, Johannes & Jonker, Nicole & Lünnemann, Patrick & Vilmunen, Jouko & Dhyne, Emmanuel & Dias, Daniel & Le Bihan, Hervé & Álvarez, Luis J. & Veronese, Giovanni & Rumler, Fabio, 2005. "Price setting in the euro area: some stylized facts from individual consumer price data," Working Paper Series 524, European Central Bank.
    4. Scott Roger & Mark R. Stone, 2005. "On Target? the International Experience with Achieving Inflation Targets," IMF Working Papers 05/163, International Monetary Fund.
    5. Kapetanios, George & Labhard, Vincent & Price, Simon, 2008. "Forecast combination and the Bank of England's suite of statistical forecasting models," Economic Modelling, Elsevier, vol. 25(4), pages 772-792, July.
    6. Silvia Fabiani & Martine Druant & Ignacio Hernando & Claudia Kwapil & Bettina Landau & Claire Loupias & Fernando Martins & Thomas Mathä & Roberto Sabbatini & Harald Stahl & Ad Stokman, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
    7. Jonas D. M. Fisher & Chin Te Liu & Ruilin Zhou, 2002. "When can we forecast inflation?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 32-44.
    8. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    9. James H. Stock & Mark W.Watson, 2003. "Forecasting Output and Inflation: The Role of Asset Prices," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 788-829, September.
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    Citations

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    Cited by:

    1. Paul Hubert, 2015. "Do Central Bank Forecasts Influence Private Agents? Forecasting Performance versus Signals," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(4), pages 771-789, June.
    2. James H. Stock & Mark W. Watson, 2008. "Phillips curve inflation forecasts," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 53.
    3. repec:lpe:efijnl:201609 is not listed on IDEAS
    4. repec:eee:eneeco:v:70:y:2018:i:c:p:334-356 is not listed on IDEAS
    5. Paul Hubert, 2010. "Monetary Policy, Imperfect Information and the Expectations Channel," Sciences Po publications info:hdl:2441/f4rshpf3v1u, Sciences Po.
    6. Simon Richards & Matthieu Verstraete, 2016. "Understanding Firms' Inflation Expectations Using the Bank of Canada's Business Outlook Survey," CESifo Working Paper Series 6090, CESifo Group Munich.
    7. In Choi & Seong Jin Hwang, 2012. "Forecasting Korean inflation," Working Papers 1202, Research Institute for Market Economy, Sogang University.
    8. George A. Kahn, 2009. "Beyond inflation targeting: should central banks target the price level?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 35-64.
    9. Lenza, Michele & Jarociński, Marek, 2016. "An inflation-predicting measure of the output gap in the euro area," Working Paper Series 1966, European Central Bank.
    10. Afees A. Salisu & Idris Ademuyiwa & Kazeem Isah, 2017. "Revisiting the forecasting accuracy of Phillips curve: the role of oil price," Working Papers 022, Centre for Econometric and Allied Research, University of Ibadan.
    11. Simon Richards & Matthieu Verstraete, 2016. "Understanding Firms' Inflation Expectations Using the Bank of Canada's Business Outlook Survey," Staff Working Papers 16-7, Bank of Canada.

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    Keywords

    Inflation (Finance);

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